Home Equity Rate & Payment Calculator - I've said it before and I'll say it again: buying a house isn't easy, there's a lot to know and you simply can't get into it without education. One of the most important forms in your buying process comes when you apply for a loan. Then, you'll get something called Truth in Lending, which can be both incredibly informative and downright terrifying.
While the Truth in Lending forms are easier to understand in October, the new forms can still be confusing for real estate types, so I thought I'd write an article about them to help you out. Look for them now, although closing businesses and banks have until October 3, 2015 to roll them out to customers like you.
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The Truth in Lending Act (TILA) was enacted in 1968 as part of the Consumer Credit Protection Act. Both went into effect in 1969. Until then, lenders weren't required to disclose the loans you signed out, which over time it led to serious problems. However, it wasn't enough to protect consumers, so TILA and Regulation Z (another part of the law that deals with credit information) continued to be changed.
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In 1994, the Home Ownership and Equity Protection Act (HOEPA) created Truth in Lending. The module was designed to allow consumers to compare different loan products at a glance without the dreaded small print or jargon. It was a start, but the uniforms of those times were still very confusing for several reasons. Banks were also allowed to make serious mistakes on these forms, leading many disgruntled homebuyers to the closing table.
Subsequent legislation has filled these loopholes, while others have changed the format of these revelations that some of us have come to know and love. The new revelations are a long way from the old ones, but there are still things in the forms that require a keen eye.
If you're wondering what that is, the FILA disclosure changes are indeed comprehensive.
As you can see, the new disclosure will not only be easier to see, but also easier for the consumer to understand – this was the whole point of the change.
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The problem with letting bankers, real estate agents, and the like (like us) design these shapes is that we know what it all means. We know what the prepayment penalty is and how the APR and loan interest rate differ. Unfortunately, we forget that you don't live and breathe real estate, you only visit to find your own place and move on.
The new module is going to be really great at clearing out a lot of confusion and scary stuff that we as agents have to deal with all the time. It also updates the forms so lines that refer to exotic mortgages that are repaid are deleted and replaced with more useful information. It's a really good move and I kind of wish we had these new jerseys at our close earlier this summer.
Now you know why they changed these uniforms and a little background on them, so I think it's time to get to work and explain the boring line. Now, you might think this is boring stuff, but trust me, when Truth in Credit is revealed in front of you, these details should answer any questions you may have.
The first page is the loan quote page, which will give you all the basic financial facts for the loan you are applying for through your bank. If you are applying for more than one loan, this page will give you a point of comparison at a glance (although read all the details before committing).
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The header is divided into two columns. On the left is all of your information, as well as the sale price that matches your request or maximum credit approval. To the right, more details about your loan, including the loan term, the purpose of your loan (often you'll see "purchase" in that space), product type, loan type, loan ID number, and details about the loan. rate freeze. You want this box always checked "yes" and pay attention to the length of your freeze - after that date you will be subject to the new rate, no matter how long ago you applied for this loan.
With relatively flat and relatively low rates, rate freezes haven't been a big deal for a while, but with the Fed keen to hike rates, it's important not to let your rate lapse while you're looking for a home. Real estate marketing is booming again, incredibly low interest rates are coming to an end.
Loan amount. This is how much money you withdraw from the bank. This will likely be different than the 'purchase price' as you will need to pay some sort of down payment. Both numbers are based on the information you provide to your lender. Most loans won't see a principal increase, but the rare exotic mortgage can create a situation where this can happen.
Interest rate. The interest rate is based on your risk as a borrower, the current rate, the amount you are borrowing, and the rate for the loan program you are using. After all of this has been taken care of, your lender enters the number in this box. In the case of an adjustable rate mortgage (ARM), this number can increase significantly over the life of the loan.
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Monthly principal and interest. Subsection 2 will calculate your PITI in its entirety, but for simplicity, your principal and interest payments appear on this row. If you have an escrow account, that's not what you'll pay the bank, just the principal and interest on your loan. Over the life of the loan, this can only increase if you have an ARM or exotic mortgage.
Prepayment Fee. Some loans will charge you extra for the privilege of paying them off sooner. If one of these is yours, this row will show that information, including the specific conditions under which a maximum fine may apply.
Payment by balloon. Most loans these days don't have bubbles, but some still do. If you have one of these loans, the information in the balloon will appear here. This way, you know how much you owe when the loan matures, as well as when it is due. Borrowers often refinance before paying off the balloon.
Payment calculation. This section is a bit complicated, I had to look it up in the manual to figure out exactly what it was about. Most loans, even those with a fixed rate, see the payment change over the life of the loan. This section covers these scenarios. So, for example, if you have mortgage insurance for the first seven years, the parts included in this payment will be in the first part of the box.
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In the next section, payment after completion of mortgage insurance payment, etc. will be explained. It also includes an estimated savings figure that should grow over time to account for tax and insurance increases -- if your form stays the same over time, ignore that part of the figure. There is no way your security deposit will increase over time.
Estimated total monthly payment. The estimated total fee will be shown below the fee calculation section. This is the total of the principal, interest, mortgage insurance, and savings calculations for each time interval in the payments calculation section. Again, if the deposit number doesn't increase over time in the image above, it will fade as you move around the page.
Estimated taxes, insurance and assessments. Here, your banker will disclose estimated taxes, homeowner's insurance, and other fees that may be included in the escrow, such as homeowner's association dues. These aren't necessarily included in your deposit, so make sure each item you wish to deposit is marked "In Storage?" make sure the word "YES" is under the title.
Estimated closing costs. The number you see here is the sum of subsections A through J on the next page. These are estimated costs only, some additional services may not be included and items such as taxes and insurance are subject to change until confirmed by the closing company.
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Estimated money to close. The lockout is also shown on the second page of the form, in the lower part, under "Calculation of the lockout". We'll talk about it later.
This section is the calculation page for the last two issues on the first page of your Truth in Lending document. Even if you require the seller to pay them, it's important to know where the closing cost data comes from.
These costs are directly related to the loan. If you bought your home with cash, these items may be included
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